Youth told to put $1k into super and watch it grow

YOUNG Australians might think that turning $1000 into $42,000 is an impossible task as they struggle to save for homes and holidays, but it can be achieved with one simple trick.

Stick $1000 in superannuation and watch it grow, and planned new super laws are set to make this much easier.

Young adults are the biggest beneficiaries of last week’s Budget changes that will reunite people with their lost super funds, ban automatic life insurance payments in super for under-25s and low balance accounts, and reduce investment fees in super funds. Combining the power of compound interest with super’s decades-long investment time frames means every dollar a 20-year-old puts in super today can grow more than 40 times in value by the pension age of 67.

Super research groups say balanced and growth investment options — where most people hold their savings — have grown around 7-8 per cent annually over the past 15 years.

“The benefits of getting engaged early are massive, and the longer you delay the harder it’s going to be to catch up,” said SuperRatings chief executive Kirby Rappell. “Your future self will thank you.”

Finding that $1000 may not cost anything. Many people have multiple super funds — each charging insurance and fees — that can be consolidated.

Minister for Financial Services Kelly O’Dwyer said some savers in low balance funds paid average annual fees of 9 per cent.

“All of this has a compounding impact,” she said.

Dixon Advisory head of advice Nerida Cole said compounding growth of $1000 “takes a while” to fire up.

“Young people’s first impression is ‘Oh well, I’ll just ignore it’. They have better things to do than look at their superannuation statement. That’s why the industry has to make it easier,” she said.

“One thousand dollars may seem small but over 47 years of compounding and not getting eaten away by your fees and insurance premiums, it’s going to have a much better chance of getting to $42,000.”